Fed President Jerome Powell (69)

DLNews Biz:

The US Federal Reserve (Fed) is driving interest rates up in leaps and bounds in the fight against rampant inflation.

It raised it by three-quarters of a percentage point on Wednesday for the third consecutive month - to the new range of 3.00 to 3.25 percent. This is the highest level since early 2008.

And that's not all: policymakers also signaled that they expect further rate hikes into early 2023, which will be significantly higher than they forecasted in June.

The stock market had expected this new jumbo step on the financial markets: an increase in interest rates by a further 0.75 percentage points was considered agreed among stockbrokers. After all, with a probability of 19 percent, an XXL step of one percentage point was also considered possible.

The central bank had already increased interest rates by 0.75 percentage points in June and July. The Fed has raised interest rates five times this year. At the beginning of the year, it was still in the range of 0.0 to 0.25 percent.

The background to the significant tightening is the very high inflation. In August, the inflation rate in the US was 8.3 percent. The Fed is targeting a rate of just 2 percent.

By raising lending rates, the Fed makes it more expensive to get a mortgage, car loan, or business loan. The plan: Consumers and companies will likely borrow less and spend less money, which will cool the economy and curb inflation.

But things could turn out quite differently: the markets are afraid that going too aggressively could stall the economy.

Fed significantly lowers US growth forecast.

Meanwhile, the Fed has announced that it expects much lower economic growth this year than assumed three months ago. The world's largest economy's gross domestic product (GDP) is expected to grow by 0.2 percent, as the Fed announced in Washington on Wednesday.

That would be 1.5 percentage points less than forecast in June. In the previous year, the economy had grown by a robust 5.7 percent as part of the recovery from the corona crisis.